15 - Market Abuse

Question 1

What are the three insider dealing offences?

Answer 1

Section 52 of CJA 1993 sets out the three insider dealing offences:

1. Dealing in price-affected securities on the basis of insider information;
2. Encouraging another person to deal in price-affected securities on the basis fo insider information; and
3. Disclosing inside information.

Question 2

When will a person have insider information as an insider?

Answer 2

Section 57(1) provides that a person has information as an insider if and only if:

• it is, and they know that it is, inside information; and
• they have it, and know that they have it, from an inside source.

Question 3

What is inside information?

Answer 3

Section 56(1) provides that ‘inside information’ is information which:

• relates to particular securities, to a particular issuer of securities or to particular issuers of securities - not to securities generally or to issuers of securities generally;
• is specific or precise;
• has not been made public; and
• if it were made public would be likely to have a significant effect on the price of any securities.

Question 4

Who is an insider?

Answer 4

Section 57(1) provides that a person has information from an inside source if and only if they have it through:

(A) being a director, employee or shareholder of an issuer of securities;
(B) having access to the information by virtue of their employment, office, or profession; or
(C) the direct or indirect source of the information is a person within (A).

Question 5

What piece of EU legislation aims to combat market abuse?

Answer 5

The 2014 Market Abuse Regulation (596/2014/EU) (MAR).

Question 6

Which body is the competent authority for applying the EU rules on market abuse?

Answer 6

In the UK, the competent authority for applying the EU rules on market abuse is the Financial Conduct Authority.

Question 7

Provide five examples of the type of activity that can constitute market manipulation.

Answer 7

Article 12 of MAR sets out the types of activities that constitute market manipulation, including:

1. entering into a transaction, placing an order to trade or any other behaviour which:
   - gives, or is likely to give, false or misleading signals as to the supply of, demand for, or price of, a financial instrument; or
   - secures, or is likely to secure, the price of one or several financial instruments at an abnormal or artificial level;
2. Entering into a transaction, placing an order to trade or any other activity or behaviour which affects or is likely to affect the price of one or several financial instruments, which employs a fictitious device or any other form of deception or contrivance;
3. Disseminating information through the media, including the internet, or by any other means, which gives (or is likely to give) false or misleading signals as to the supply of, demand for, or price of, a financial instrument, or secures (or is likely to secure) the price of one or several financial instruments at an abnormal or artificial level. This includes the dissemination of rumours where the person who made the dissemination knew, or ought to have known, that the information was false or misleading;
4. Transmitting false or misleading information or providing false or misleading input in relation to a benchmark where the person who made the transmission or provided the input knew or ought to have known that it was false or misleading, or any other behaviour which manipulates the calculation of a benchmark;
5. Conduct by a person, or persons acting in collaboration, to secure a dominant position over the supply of or demand for a financial instrument, which has, or is likely to have, the effect of fixing, directly or indirectly, purchase or sales prices or creates, or is likely to create, other unfair trading conditions; or
6. The buying or selling of financial instruments at the opening or closing of the market, which has or is likely to have the effect of misleading investors acting on the basis of the prices displayed, including the opening or closing prices.

Question 8

What sanctions can be imposed upon a person who has engaged in market abuse?

Answer 8

Where a person (P) engages in prohibited insider dealing or prohibited market manipulation, then FSMA 2000 empowers the FCA to impose a range of sanctions upon that person, including:

• imposing upon P a penalty of such amount as the FCA considers appropriate (s. 123(1) and (2)) or, instead of imposing a penalty, publishing a statement censuring P (s. 123(3));
• temporarily or permanently prohibiting P from holding certain positions, such as an office or position involving responsibility for taking decisions about the management of an investment firm (s. 123A(2)(a));
• temporarily prohibiting P from acquiring or disposing of financial instruments (s. 123A(2)(b));
• suspending, for such period as the FCA considers appropriate (up to a maximum of 12 months), any permission which P has to carry on a regulated activity (s. 123B(2)(a) and (4));
• imposing, for such period as the FCA considers appropriate (up to a maximum of 12 months), such limitations or other restrictions in relation to the carrying on of a regulated activity by the person as the FCA considers appropriate (s. 123B(2)(b) and (4)).